ACC 317 Managerial Accounting: Assignment 1 Start-up Budgeting

Outsourcing Trends

Surveys E xam ine O utsourcing Trends

A g n e s S h a n l e y

D e s p ite t h e m o v e t o m o r e s tr a te g ic p a r tn e r s h ip s ,

re s e a rc h s h o w s t h a t ta c tic a l o u ts o u r c in g is s till

a liv e a n d w e ll.

A s more pharmaceutical manufacturing, quality, and development functions are outsourced, it has be­ come difficult to get specifics on who is outsourc­ ing to whom and why. W ithin the past few years,

research firms have sprung up to specialize in this niche, and to shed light on trends. T hat’s Nice published results of its research in January 2016 (1), while Industry Standard Research (ISR) released findings early in 2016 (2,3) and in the last quarter of 2015. ISR uses a “Consum er’s Reports” type style to rank contract development and manufacturing organizations (CDMOs) and contract manufacturing orga­ nizations (CMOs) in various specialties, based on reported user experience.

Some of the two firms’ research is available only to sub­ scribers, but they shared other data with Pharmaceutical Technology. Here is a sampling of trends that they found.

S m a l l - m o l e c u l e m a n u f a c t u r i n g o u t s o u r c e d

In its 2016 small-molecule outsourcing survey, ISR found that, out of 199 respondents, most are outsourcing nearly all of their manufacturing to CMOs, according to market research direc­ tor Kate Hammeke.

More than h alf of respondents (54%) reported using a preferred provider list, she says, and the greatest propor­ tion of small-molecule projects were outsourced to preferred providers (36%). There was not much difference, however, between the percentage of projects outsourced to preferred providers versus tactically (33%) or strategically (30%).

For small molecules, outsourced activities ranked in order are as follows:

• API manufacturing • Packaging and labeling • Distribution • Holding and storage • Drug product manufacturing (finished dosage) • Chemical synthesis • Analytical testing and other lab services • Cold chain management. For biopharmaceutical manufacturers, 158 of which re­

sponded to ISR’s survey, nearly all report using CMOs to augment internally m anufactured supply, Hammeke says. Roughly half (51%) report using a preferred provider list of CMOs, yet the distribution of projects to preferred pro­ viders (34%) was close to the percentage outsourced tac-

s32 Pharmaceutical Technology partnership strategies in outsourcing 20m P h a r m T e c h . c o m

tically (35%). Slightly fewer large-molecule projects were outsourced strategically (31%)

That’s Nice’s research into outsourcing to CDMOs found th at 22% o f new biological entity (NBE) m anufacturers were outsourcing to CDMOs, 21% of small-molecule new chem ical en tity (NCE) m anufacturers, 20% of generic pharmaceutical manufacturers, 20% of biosimilars m anu­ facturers, and 18% of m anufacturers of over-the-counter pharmaceuticals.

O u t s o u r c i n g b u d g e t s

According to That’s Nice’s research, 43% of biopharmaceutical and phar­ maceutical manufacturing respon­ dents said that their outsourcing budgets were $50 million to $100 million, with 28% saying that they outsourced more than $100 million to CDMOs. Seventy-five percent of respondents expected their out­ sourcing budgets to increase.

ISR's research into small-molecule API outsourcing found 36% of projects went to preferred vendors, 33% were outsourced tactically and 30%, strategically.

R egarding tim in g for o u tso u rc ­ ing, 63% of respondents said they o utsource at Phase II and 54% at Phase III. O f emerging companies, 71% indicated that they outsourced to CDMOs at Phase I, with 70% of mid-sized companies outsourcing to CDMOs at Phase II.

The top three drivers, overall, for selecting a CDMO are quality, reli­ ability, and innovation, according to T hat’s Nice research. Companies surveyed by That’s Nice showed a re­ ceptiveness to strategic partnerships.

Eighty-three percent said they felt that it was likely for a preferred pro­ vider to become a strategic partner,

while 81% said it could be likely for tactical service providers to become preferred partners.

R e f e r e n c e s

1. CDMO Buying Trends, That’s Nice,, http://www.mcem- sightcdmo.com/buying-trends.aspx.

2. Small Molecule API Contract Manufacturer Quality Bench­ marking report, http://www.isrreports.com/reports/small-mol- ecule-api-contract-manufacturer-quality-benchmarking-2016/

3. Biologic API Contract Manufacturer Quality Benchmarkeing report, http://www.isrreports.com/reports/biologic-api-con- tract-manufacturer-quality-benchmarking-2016/ ISR.com PT

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